Risk Appetite

Aug 1, 2012

How Risk Aversion Can Hurt Your Organization

While we know we must take risks to generate returns, some programs fail to remind managers that ERM is as much about taking risks in pursuit of value as it is about risk avoidance or mitigation. Sometimes too much attention is focused on risk avoidance, which may cause some organizations to squander reasonable opportunities to grow and achieve enterprise objectives. A McKinsey & Company article explains how an overabundance of risk-averse management behavior can actually inhibit a firm from progressing at its full potential. The article outlines behavioral biases that create this risk-avoidance phenomenon among managers and offers guidelines that can help companies mitigate these behavioral biases, thus improving risk management and business performance.

Jun 1, 2012

Risk Appetite: A Conversation of Governance

Managers often view risk appetite as a highly theoretical concept: one that is determined instead of discussed, irrelevant instead of practical, or static instead of adaptive. This paradigm is due to the notion that risk appetite reflects a short term risk philosophy of the company, and the frequency of which risk appetite is viewed as being congruent with risk tolerance. The authors of this Protiviti white paper discuss the importance of developing and maintaining a risk appetite statement as well as using it to spur conversation between management and the board of directors in the governance process.

May 1, 2011

A Comprehensive Guide to Risk Appetite and Risk Tolerance

With the scarcity of useful guidance to help organizations determine risk appetite and risk tolerance, the Institute of Risk Management (IRM) is seeking to clarify and produce guidance to more effectively communicate an understanding of risk appetite. As a result, IRM released a consultation paper with detailed approaches for developing and using risk appetite and risk tolerance in risk management. In addition to the guidance provided, questions are listed throughout the document with the suggestion that they be asked in the boardroom to ensure that risk appetite and risk tolerance are being adequately addressed.

Jul 1, 2010

Balancing Risk Appetite and Strategy Execution

Good risk management involves making informed and rational decisions considering the risks the company wants to take in pursuit of its objectives and regarding the measures used to mitigate and manage risks. This publication explores how companies can effectively define risk appetite, risk tolerance, and risk targets to execute strategies and perform effective risk management to gain a competitive advantage.

Jun 28, 2010

Aligning Risk Appetite and Risk Exposure

The devastating effects of the global credit crisis can be linked to the failure of organizations to embed risk management within the foundation of strategic and operational processes. Now, increased pressures from all around call for an integrated and aligned approach to risk management. This white-paper explores how organizations can effectively align performance and risk management processes to not only reduce risk but also embrace opportunities.

Dec 1, 2008

Understanding and Articulating Risk Appetite

Risk appetite, when properly understood and articulated, can be a powerful tool for managing risk and enhancing overall business performance by better aligning decision-making and risk. Many organizations have a need for increased clarity regarding their risk appetite and this article provides insights on formulating and defining risk appetites.

Sep 1, 2008

Managing Risks for Comparative Advantage: Five Steps to Better Risk Management

This articles highlights a five-step process to help companies make changes to better their approach to risk management in response to the developments occurring in the corporate approach to risk management: 1. Identify and understand your major risks; 2. Decide which risks are natural; 3. Determine your capacity and appetite for risk; 4. Embed risk in all decisions and processes; and 5. Align governance and organization around risk.